New York State Office of the State Comptroller
Thomas P. DiNapoli
Division of State Government Accountability
Report 2012-...
2012-S-20
Division of State Government Accountability 1
Executive Summary
Purpose
To determine whether the costs reported ...
2012-S-20
Division of State Government Accountability 2
State of New York
Office of the State Comptroller
Division of Stat...
2012-S-20
Division of State Government Accountability 3
State Government Accountability Contact Information:
Audit Directo...
2012-S-20
Division of State Government Accountability 4
Background
The Churchill School and Center (Churchill), located in...
2012-S-20
Division of State Government Accountability 5
Audit Findings and Recommendations
Weidentified$3,023,220incostsch...
2012-S-20
Division of State Government Accountability 6
Executive Salaries
The Manual states that reimbursable compensatio...
2012-S-20
Division of State Government Accountability 7
Non-Personal Service Costs
According to the Manual, non-personal s...
2012-S-20
Division of State Government Accountability 8
home address is located just 33 miles from the school);
•	$19,511 ...
2012-S-20
Division of State Government Accountability 9
Gifts to Oversight Agencies
According to the Manual, the cost of g...
2012-S-20
Division of State Government Accountability 10
DoE officials told us that they were not aware of the disposal of...
2012-S-20
Division of State Government Accountability 11
We conducted our performance audit in accordance with generally a...
2012-S-20
Division of State Government Accountability 12
Division of State Government Accountability
Andrew A. SanFilippo,...
2012-S-20
Division of State Government Accountability 13
Churchill School and Center 
Schedule of Submitted, Disallowed, a...
2012-S-20
Division of State Government Accountability 14
Notes to Exhibit
The Notes shown below refer to specific sections...
2012-S-20
Division of State Government Accountability 15
Agency Comments - State Education Department
2012-S-20
Division of State Government Accountability 16
2012-S-20
Division of State Government Accountability 17
Agency Comments - Churchill School and Center
2012-S-20
Division of State Government Accountability 18
*
Comment
1
*
Comment
2
*
Comment
3
* See State Comptroller’s Com...
2012-S-20
Division of State Government Accountability 19
2012-S-20
Division of State Government Accountability 20
*
Comment
4
2012-S-20
Division of State Government Accountability 21
*
Comment
4
*
Comment
5
2012-S-20
Division of State Government Accountability 22
*
Comment
5
2012-S-20
Division of State Government Accountability 23
*
Comment
6
*
Comment
7
2012-S-20
Division of State Government Accountability 24
*
Comment
8
*
Comment
9
2012-S-20
Division of State Government Accountability 25
*
Comment
10
*
Comment
11
2012-S-20
Division of State Government Accountability 26
*
Comment
12
*
Comment
13
2012-S-20
Division of State Government Accountability 27
*
Comment
14
2012-S-20
Division of State Government Accountability 28
2012-S-20
Division of State Government Accountability 29
State Comptroller’s Comments
1.	 Churchill’s comments are mislead...
2012-S-20
Division of State Government Accountability 30
other school districts made buses available to Churchill to trans...
Upcoming SlideShare
Loading in …5
×

The Churchill School and Center Audit

582 views
470 views

Published on

The Churchill School and Center (Churchill), located in New York City, is a private not-for-profit education corporation that includes the Churchill School (Churchill), the Churchill Center (Center), and a Development Office. Churchill provides special education services, pursuant to Section
853 of the State Education Law (Law), to children from kindergarten through the 12th grade
classified as having a learning disability and/or speech-language impairment. The Center offers
educational programs to non-Churchill students and professional development workshops to parents, teachers, and other service providers. The Development Office administers the fundraising,
endowment, marketing, special events, and alumni activities for the affiliated entities.

Published in: Education
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
582
On SlideShare
0
From Embeds
0
Number of Embeds
125
Actions
Shares
0
Downloads
3
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

The Churchill School and Center Audit

  1. 1. New York State Office of the State Comptroller Thomas P. DiNapoli Division of State Government Accountability Report 2012-S-20 May 2014 Compliance With the Reimbursable Cost Manual State Education Department Churchill School and Center
  2. 2. 2012-S-20 Division of State Government Accountability 1 Executive Summary Purpose To determine whether the costs reported by the Churchill School and Center on its Consolidated Fiscal Reports (CFRs) were calculated properly, documented adequately, and reimbursable pursuant to the State Education Department’s (SED) Reimbursable Cost Manual (Manual). The audit covers the three fiscal years ended June 30, 2011. Background The Churchill School and Center consists of the Churchill School (Churchill), the Churchill Center (Center), and a Development Office. Churchill provides special education services, pursuant to Section 853 of the State Education Law (Law), to children in kindergarten through 12th grade. Pursuant to the Law, schools such as Churchill receive reimbursement from SED based on the expenses reported in their annual CFRs. To be eligible for reimbursement, reported expenses must comply with Manual requirements. Churchill officials claimed approximately $43 million in Program-related expenses during the audit period. Key Findings We disallowed $3,023,220 in claimed costs as follows: • $1,412,227 in compensation costs incurred by the Center and the Development Office, but charged to the Churchill School; • $439,527 in food, parties, gifts, and other ineligible, inappropriate, and/or insufficiently documented expenses. These expenses included $9,709 spent on alcoholic beverages; • $429,729 in employee bonuses that did not comply with Manual requirements; • $376,597 in compensation paid to the Churchill School’s Executive Director and Chief Financial Officer in excess of SED’s allowable compensation levels; • $220,501 in unnecessary transportation costs; and • $144,639 in unallowable equipment depreciation expenses. Key Recommendations • Review the disallowances identified in our audit, adjust Churchill’s CFRs and tuition reimbursement rates accordingly, and recover overpayments as appropriate. • SED and Churchill officials should work together to ensure that only eligible costs are included on Churchill’s CFRs. Other Related Audits/Reports of Interest Bilingual SEIT & Preschool, Inc.: Compliance With the Reimbursable Cost Manual (2011-S-13) Special Education Associates, Inc.: Compliance With the Reimbursable Cost Manual (2010-S-31)
  3. 3. 2012-S-20 Division of State Government Accountability 2 State of New York Office of the State Comptroller Division of State Government Accountability May 27, 2014 Dr. John B. King, Jr. Commissioner State Education Department State Education Building - Room 125 89 Washington Avenue Albany, NY 12234 Mr. Robert Siebert Executive Director Churchill School and Center 301 E. 29th Street New York, NY 10016 Dear Dr. King and Mr. Siebert: The Office of the State Comptroller is committed to helping State agencies, public authorities, and local government agencies manage government resources efficiently and effectively and, by so doing, providing accountability for tax dollars spent to support government operations. The Comptroller oversees the fiscal affairs of State agencies, public authorities, and local government agencies, as well as their compliance with relevant statutes and their observance of good business practices. The fiscal oversight is accomplished, in part, through our audits, which identify opportunities for improving operations. Audits can also identify strategies for reducing costs and strengthening controls that are intended to safeguard assets. Following is a report of our audit of the State Education Department and the Churchill School and Center entitled Compliance With the Reimbursable Cost Manual. This audit was performed pursuant to the State Comptroller’s authority as set forth in Article V, Section 1, of the State Constitution and Article II, Section 8, of the State Finance Law. This audit’s results and recommendations are resources for you to use in effectively managing your operations and in meeting the expectations of taxpayers. If you have any questions about this draft report, please feel free to contact us. Respectfully submitted, Office of the State Comptroller Division of State Government Accountability
  4. 4. 2012-S-20 Division of State Government Accountability 3 State Government Accountability Contact Information: Audit Director: Frank Patone Phone: (212) 417-5200 Email: StateGovernmentAccountability@osc.state.ny.us Address: Office of the State Comptroller Division of State Government Accountability 110 State Street, 11th Floor Albany, NY 12236 This report is also available on our website at: www.osc.state.ny.us Table of Contents Background 4 Audit Findings and Recommendations 5 Personal Service Costs 5 Non-Personal Service Costs 7 Other Matters 9 Recommendations 10 Audit Scope and Methodology 10 Authority 11 Reporting Requirements 11 Contributors to This Report 12 Exhibit 13 Notes to Exhibit 14 Agency Comments - State Education Department 15 Agency Comments - Churchill School and Center 17 State Comptroller’s Comments 29
  5. 5. 2012-S-20 Division of State Government Accountability 4 Background The Churchill School and Center (Churchill), located in New York City, is a private not-for-profit education corporation that includes the Churchill School (Churchill), the Churchill Center (Center), and a Development Office. Churchill provides special education services, pursuant to Section 853 of the State Education Law (Law), to children from kindergarten through the 12th grade classified as having a learning disability and/or speech-language impairment. The Center offers educational programs to non-Churchill students and professional development workshops to parents, teachers, and other service providers. The Development Office administers the fund- raising, endowment, marketing, special events, and alumni activities for the affiliated entities. The New York City Department of Education (DoE), and other school districts whose students are placed at Churchill, pay tuition to Churchill based on rates established by the New York State Education Department (SED). SED develops these rates annually using the financial information that Churchill reports on its annual Consolidated Fiscal Reports (CFRs). SED’s Reimbursable Cost Manual (Manual) offers guidance to special education providers on the eligibility of reimbursable costs, the documentation necessary to support those costs, and the cost-allocation requirements for indirect expenses. Churchill served 397 students during the 2010-11 school year and reported approximately $43 million in Program-related costs for the three fiscal years ended June 30, 2011 (see Exhibit at the end of this report).
  6. 6. 2012-S-20 Division of State Government Accountability 5 Audit Findings and Recommendations Weidentified$3,023,220incostschargedtoChurchillthatwereeitherunsupported,inappropriate, or non-Program related. Personal Service Costs According to the Manual, a provider’s personal service costs (salaries and fringe benefits) must be reported on its CFRs as either direct care costs (e.g., teacher salaries) or non-direct care (allocated) costs (e.g., administrative staff salaries). During the audit period, Churchill reported $32,575,939 in Program-related personal service costs. We disallowed $2,262,298 of this amount, as discussed next. Unapproved Program Costs We identified $1,086,340 in compensation costs charged to Churchill for non-Program-related activities during the three fiscal years ended June 30, 2011. Churchill reported $358,636 in extra service payments to as many as 41 Churchill employees for time worked in an after-school program run by the Center – not Churchill. Similarly, Churchill charged $400,669 and $327,035, respectively, in compensation and other expenses for six non-Churchill employees who worked for the Center and the Development Office performing fund-raising and other non-Program- related activities. Employee Bonuses The Manual defines bonuses as non-recurring, non-accumulating lump-sum payments to employees, in excess of their regularly scheduled salaries, that are not directly related to the number of hours worked. Bonuses are reimbursable if they are based on merit as measured and supported by employee performance evaluations. Churchill’s annual employment agreements with its employees state that bonuses will be awarded periodically to supplement employees’ regular salaries. A review of Churchill’s payroll records for the two fiscal years ended June 30, 2011 showed $429,729 in bonuses to 135 and 139 employees, respectively. Churchill officials told us that, despite the language in their employment agreements, the payments made during the 2009-10 fiscal year were not bonuses – and therefore performance evaluations were not required. They said the extra monies paid to employees during this period offset increased health insurance premiums and helped the school recruit and/or retain qualified teachers. However, Churchill officials did not have anything in writing to support this assertion. Moreover, the same officials acknowledged that similar payments made to employees during the 2010-11 year were, in fact, bonuses and that no performance evaluations were prepared for any employee that year. We disallowed the entire $429,729 in bonus payments made during the audit period.
  7. 7. 2012-S-20 Division of State Government Accountability 6 Executive Salaries The Manual states that reimbursable compensation (e.g., salaries and fringe benefits) for a provider’s Executive Director (ED) and the Chief Financial Officer (CFO) should not exceed the “regional median compensation” paid to comparable personnel in public schools. The limits are based on geographic location, school size, and other relevant comparable data. Based on these limits, we disallowed $376,597 of their compensation charged to the program as follows: • For the three-year period ended June 30, 2011, Churchill reported $322,092, $369,927, and $412,850, respectively, as the compensation paid to its ED. The regional median compensation for an ED during this three-year period was $245,578, $240,366, and $254,385, respectively. We are disallowing the additional $364,540 of compensation paid to the ED during this period. • Similarly, the reported compensation paid to Churchill’s CFO for the fiscal year ended June 30, 2011 was $214,378, while the comparable regional median compensation for a CFO during this period was $202,321. As such, we are disallowing the $12,057 in excess compensation charged to the Program for this individual. SED officials informed us that they have already adjusted executives’ compensation to comply with the regional median limits. Unallocated Costs According to the Manual, the compensation paid to employees who work at multiple Churchill programs or related entities (non-direct charges) must be allocated to those programs and facilities based on a fair and reasonable methodology. During the three fiscal years ended June 30, 2011, Churchill incorrectly charged salaries totaling $2,913,336 to the Program for employees, such as maintenance and custodial staff, whose salaries should have been allocated. Based on the ratio value allocation methodology, a methodology approved by the Manual, we determined that only $2,587,449 of these costs should have been charged to the Program. Therefore, we are disallowing the overallocation of $325,887. Recognition Awards and Stipends During the audit period, Churchill issued 47 service recognition awards, totaling $41,995, ranging from $500 to $2,500 per employee. SED officials advised us that service recognition awards are comparable to gifts, and therefore are not expenses eligible for reimbursement. We disallowed the $41,995 charged to the Program for these awards. Churchill officials also paid $1,750 in stipends to two employees to accompany students on a seven-day surfing trip to Puerto Rico. Although Churchill officials told us the stipends were not claimed for reimbursement, we found that they were in fact included on the CFR. We are disallowing these payments as they are not Program related.
  8. 8. 2012-S-20 Division of State Government Accountability 7 Non-Personal Service Costs According to the Manual, non-personal service (NPS) costs must be adequately supported and Program appropriate. Examples of relevant supporting documents include purchase orders, receivingreports,andvendorinvoices. Together,thesedocumentsdescribetheitem(s)purchased, the associated cost, and date of receipt. During the audit period, Churchill reported an aggregate of $10,272,447 in NPS costs on its CFRs. We disallowed $760,922 of these costs that were either unsupported or non-Program related. Transportation Costs The DoE and other associated local school districts pay for the busing of Churchill students to and from school at the beginning and end of each school day. The buses are also available for use by Churchill between 9:30 a.m. and 1:30 p.m. to transport students to and from off-site activities. DoE officials informed us that they assign 34 school buses to Churchill each day for these purposes, and each bus transports about 10 students. DoE officials further informed us that they issue MetroCards for student use (323 active cards during our audit). Nevertheless, Churchill officials contracted with a private bus company to transport Churchill students to and from off-site activities during school hours. Churchill officials did not disclose this unnecessary transportation expenditure on its CFRs. Instead, our review of other CFR expense categories found $220,501 of these costs buried in the “supplies and materials” account. We are disallowing this unnecessary, non-Program-related, and incorrectly reported expense. Depreciation of Grant-Funded Equipment For the three fiscal years ended June 30, 2011, Churchill charged the Program $144,639 in depreciation costs for computers it purchased with non-Program monies, specifically grants provided by the Federal Individuals with Disabilities Education Act of 2004 (IDEA). We disallowed this charge because the Manual does not allow providers to claim reimbursement for depreciation expenses on equipment purchased with IDEA grants. Food, Entertainment, and Personal Expenses The Manual specifically states that expenses of a personal nature, meals, and entertainment of officers and/or employees are not reimbursable expenses. During the audit period, Churchill charged the Program $126,382 for food, entertainment, flowers, parking fees, and other non- Program-related expenses, including alcoholic beverages. We are disallowing this entire amount. We also identified: • $64,080 charged to the Program for the rental of an apartment and associated utilities, travel allowances, and a health club membership for the ED. Churchill officials told us the apartment was provided to the ED so he could be closer to the school. (Note: The ED’s
  9. 9. 2012-S-20 Division of State Government Accountability 8 home address is located just 33 miles from the school); • $19,511 in parking garage fees for three Churchill officials including the ED, the Facility and Security Director, and the Maintenance Supervisor; • $66,039 charged to the CFRs for student activities already paid for by parents and for uniforms, which are ineligible for reimbursement, according to the Manual; • $56,973 in bank charges, including $49,269 in credit card processing fees, which are not reimbursable per the Manual; and • $3,415 in expenses that were insufficiently documented. Non-Audit Services All special education providers which submit CFRs are required to have their annual financial statements and CFRs certified by an independent certified public accountant (CPA). As such, the costs for these services are reimbursable. However, costs for non-audit services by a CPA (e.g., investment advising, consulting) are not reimbursable. Further, if the provider’s independent CPA also performs non-audit services for the provider, he/she should disclose such in the supporting notes to the financial statements. We found Churchill paid its independent CPA a total of $48,096 to perform budget analyses, bank reconciliations and investment, accounting, consulting, and related services during the 2010-11 fiscal year. We are disallowing these charges because they are not eligible for reimbursement. We also note that the CPA did not disclose the non-audit services performed during the fiscal year as required. We have referred this CPA firm to the SED’s Office of Professions for follow-up. Petty Cash A petty cash fund provides an entity with liquid funds for minor purchases. To properly control these funds, the fund custodian should maintain paperwork describing the nature and purpose of each fund disbursement, who requested the funds, and receipts to document those purchases. At Churchill, individual fund disbursements are limited to $25. We reviewed 126 petty cash disbursements (totaling $12,481) that the fund made to Churchill’s Controller (who was also an authorized signatory for fund checks) and identified $11,126 in inappropriate expenses, as follows: • $7,615 in stipends where the actual use of the funds and Program relationship are not adequately documented. For example, a $2,600 check was given to the Controller supposedly to pay $100 each to 26 teachers who were proctoring exams. There is no evidence of these individual disbursements or supporting agreements. • We also identified $3,511 used for personal, non-Program-related purposes such as food for parents and staff, gifts, and MetroCards for students to attend baseball games.
  10. 10. 2012-S-20 Division of State Government Accountability 9 Gifts to Oversight Agencies According to the Manual, the cost of gifts is not reimbursable. However, we found three separate purchases of gifts, such as candy baskets, made by Churchill’s Controller to the DoE employee responsible for processing Churchill vouchers. The total cost of these gifts was $160. Not only are these gifts unreimbursable, but the DoE employee who accepted them may have violated his/her agency’s ethics policies. As such, we have referred this issue to DoE’s Ethics Unit. Other Matters Computers Purchased with Federal Grants SED is the NYS conduit for Federal IDEA grants to local education agencies such as the DoE. The DoE administers and disburses these grants to schools within the NYC school district; the grants are then used to offset the costs of special education programs. During the three fiscal years ended June 30, 2011, the Churchill School received $1,812,680 in IDEA grants. A review of the school’s general ledgers showed that $648,043 was spent to make 45 group purchases of computers, other computer equipment, and computer-related services. However, we could not determine the exact number of computers that were purchased. We judgmentally selected and attempted to locate 210 computers (costing $170,199) that were purchased in three of the 45 groups. We located 93 of the 210 computers at the school. Of the remaining 117 computers, we found that Churchill School officials had donated 30 (costing $24,870) to a Catholic elementary school and nine (costing $5,481) to a charter school. In addition, 53 computers (costing $32,277) were transferred to a person who collects computers for distribution to schools and organizations that need them. Churchill School officials advised that they had worked with this person in the past and were satisfied that the computers were being used by the recipient schools and organizations. We interviewed him and determined that 27 (of the 53) computers were donated to a Catholic high school. The remaining 26 computers were in the trunk of his car. Thus, the School made 92 computers available for donation to other organizations. Based on the 93 computers located at the school and the 92 computers available for donation, we accountedfor185ofthe210computersacquiredthroughthethreegrouppurchaseswereviewed. However, we were unable to account for the remaining 25 computers that were purchased with the IDEA funds. Moreover, Churchill School officials could not provide an explanation for the 25 missing computers. According to Churchill School officials, they donated the computers because they had technical problems with some of them, and others were inappropriate for school use. We believe that Churchill officials should have done a better job assessing academic program and information technology needs prior to purchasing the computers to help ensure their optimal use after acquisition.
  11. 11. 2012-S-20 Division of State Government Accountability 10 DoE officials told us that they were not aware of the disposal of the computers. They also note that although Churchhill officials were not required to inform them, SED guidelines do require that such items be properly inventoried, which in this case they were not. Staff-to-Student Ratios and Non-Certified Teachers We also identified several Program-related issues, such as questionable staff-to-student ratios and the use of non-certified teachers, which appear to be contrary to the applicable SED rules, regulations, and/or formal approvals. We have referred these issues and their pertinent details to SED for programmatic assessment and follow-up, as appropriate. Recommendations To SED: 1. Review the disallowances identified in our audit, adjust Churchill’s CFRs and reimbursement rates accordingly, and recover overpayments as appropriate. 2. Review the program matters pertaining to computer utilization and disposal, student-to-staff ratios, and non-certified teachers as identified. Require Churchill to develop remedial action plans, as warranted. To Churchill: 3. Ensure that costs reported on CFRs fully comply with the applicable provisions of the Manual. 4. Establish effective inventory controls over computers and comply with applicable SED guidance and approvals with respect to teacher staffing ratios and certifications. Audit Scope and Methodology We audited the expenses reported on Churchill’s CFRs for the three fiscal years ended June 30, 2011. The objectives of our audit were to determine whether the costs reported by the Churchill School were properly calculated, adequately documented, and reimbursable pursuant to the Manual. To accomplish our objectives, we reviewed Churchill’s CFRs and supporting financial records, examined audit documentation maintained by Churchill’s independent CPAs, and interviewed Churchill officials and staff. We interviewed SED and DoE officials to confirm our understanding of Manual requirements. We also reviewed supporting documentation for a sample of expenses charged to the Program. The scope of our audit work on internal controls focused on those controls over personal and NPS expense transactions, and those relating to CFR preparation.
  12. 12. 2012-S-20 Division of State Government Accountability 11 We conducted our performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to being the State Auditor, the Comptroller performs certain other constitutionally and statutorily mandated duties as the chief fiscal officer of New York State. These include operating the State’s accounting system; preparing the State’s financial statements; and approving State contracts, refunds, and other payments. In addition, the Comptroller appoints members to certain boards, commissions, and public authorities, some of whom have minority voting rights. These duties may be considered management functions for purposes of evaluating organizational independence under generally accepted government auditing standards. In our opinion, these management functions do not affect our ability to conduct independent audits of program performance. Authority The audit was performed pursuant to the State Comptroller’s authority as set forth in Article V, Section 1, of the State Constitution and Article II, Section 8, of the State Finance Law. Reporting Requirements We provided our preliminary audit observations to SED and Churchill officials for their review and comment. Their comments were considered when preparing this final report and are attached in their entirety at the end of the report. SED officials agreed with our recommendations and indicated that they have taken and will take steps to implement them. Churchill officials disagreed with most of our report’s recommended disallowances. Our rejoinders to certain Churchill comments are included in our report’s State Comptroller’s Comments. Within 90 days of the final release of this report, as required by Section 170 of the Executive Law, the Commissioner of the State Education Department shall report to the Governor, the State Comptroller, and the leaders of the Legislature and fiscal committees, advising what steps were taken to implement the recommendations contained herein, and if the recommendations were not implemented, the reasons why.
  13. 13. 2012-S-20 Division of State Government Accountability 12 Division of State Government Accountability Andrew A. SanFilippo, Executive Deputy Comptroller 518-474-4593, asanfilippo@osc.state.ny.us Tina Kim, Deputy Comptroller 518-473-3596, tkim@osc.state.ny.us Brian Mason, Assistant Comptroller 518-473-0334, bmason@osc.state.ny.us Vision A team of accountability experts respected for providing information that decision makers value. Mission To improve government operations by conducting independent audits, reviews and evaluations of New York State and New York City taxpayer financed programs. Contributors to This Report Frank Patone, CPA, Audit Director Kenrick Sifontes, Audit Manager Sheila Jones, Audit Supervisor Irina Kovaneva, Examiner-in-Charge Adefemi Akingbade, Staff Examiner Trina Clarke, Staff Examiner Carlitos Rodriguez, Staff Examiner Daphnee Sanon, Staff Examiner Dmitri Vassiliev, Staff Examiner
  14. 14. 2012-S-20 Division of State Government Accountability 13 Churchill School and Center  Schedule of Submitted, Disallowed, and Allowed Program Costs  Fiscal Years 2008‐09, 2009‐10, and 2010‐11  Program Costs  Amount Per  CFR  Amount  Disallowed  Amount  Allowed  Notes to  Exhibit  Personal Services                 Direct Care  $29,399,440 $1,854,909 $27,544,531             Agency Administration  $3,176,499 $407,389     2,769,110    Total  Personal Services  $32,575,939 $2,262,298 $30,313,641  A ‐ C, H, J        Non‐Personal Services               Direct Care  $8,631,796 $682,917 $7,948,879             Agency Administration  $1,640,651 $78,005 $1,562,646    Total Non‐Personal Services  $10,272,447 $760,922 $9,511,525  A, D ‐ I      Total Program Costs  $42,848,386 $3,023,220 $39,825,166  Exhibit
  15. 15. 2012-S-20 Division of State Government Accountability 14 Notes to Exhibit The Notes shown below refer to specific sections of the Reimbursable Cost Manual upon which we have based our adjustment. We have summarized the applicable section to explain the basis for the disallowance. We provided details of the transactions in question to SED and Churchill School and Center officials during the course of our audit. A. Section I - Costs must be reasonable, necessary, program related, and sufficiently documented. B. Section I.14 - Compensation for personal services includes all salaries and wages, as well as fringe benefits and pension plan costs. C. Section I.l4.B(2)(b) - Costs of benefits for employees who provide services to more than one program and/or entity must be allocated to separate programs and/or entities in proportion to the salary expense allocated to each program. D. Section I.21.A - Costs incurred for entertainment of officers or employees, or for activities not related to the program, or any related items such as meals, lodging, rentals, transportation, and gratuities are not reimbursable. E. Section I.21.B - All personal expenses, such as personal travel expenses, laundry charges, beverage charges, gift certificates to staff and vendors, flowers or parties for staff, holiday parties, repairs on a personal vehicle, rental expenses for personal apartments, etc., are not reimbursable unless specified otherwise in this Manual. F. Section I.23.C - Costs of food provided to any staff including lunchroom monitors are not reimbursable. G. Section I.30.(3) - Costs for food, beverages, entertainment, and other related costs for meetings, including Board meetings, are not reimbursable. H. Section II.A.1 - Compensation costs must be based on approved and documented payrolls. Payrolls must be supported by employee time records prepared during, not after, the time period for which the employee was paid. Employee time sheets must be signed by the employee and a supervisor, and must be completed at least monthly. I. Section II.A.4 - All purchases must be supported with invoices listing items purchased and indicating date of purchase and date of payment, as well as canceled checks. Costs must be charged directly to specific programs whenever possible. The particular program(s) must be identified on invoices or associated documents. J. Section II.C.10 - A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost.
  16. 16. 2012-S-20 Division of State Government Accountability 15 Agency Comments - State Education Department
  17. 17. 2012-S-20 Division of State Government Accountability 16
  18. 18. 2012-S-20 Division of State Government Accountability 17 Agency Comments - Churchill School and Center
  19. 19. 2012-S-20 Division of State Government Accountability 18 * Comment 1 * Comment 2 * Comment 3 * See State Comptroller’s Comments on Page 29.
  20. 20. 2012-S-20 Division of State Government Accountability 19
  21. 21. 2012-S-20 Division of State Government Accountability 20 * Comment 4
  22. 22. 2012-S-20 Division of State Government Accountability 21 * Comment 4 * Comment 5
  23. 23. 2012-S-20 Division of State Government Accountability 22 * Comment 5
  24. 24. 2012-S-20 Division of State Government Accountability 23 * Comment 6 * Comment 7
  25. 25. 2012-S-20 Division of State Government Accountability 24 * Comment 8 * Comment 9
  26. 26. 2012-S-20 Division of State Government Accountability 25 * Comment 10 * Comment 11
  27. 27. 2012-S-20 Division of State Government Accountability 26 * Comment 12 * Comment 13
  28. 28. 2012-S-20 Division of State Government Accountability 27 * Comment 14
  29. 29. 2012-S-20 Division of State Government Accountability 28
  30. 30. 2012-S-20 Division of State Government Accountability 29 State Comptroller’s Comments 1. Churchill’s comments are misleading. In fact, the costs reported by Churchill on its CFR directly impact the tuition rates (as calculated by SED) that school districts pay Churchill. Reductions to CFR-reported costs could result in reductions to Churchill’s SED-approved tuition rates, irrespective of the private revenues Churchill might need to pay costs not covered by its SED-approved rates. 2. We discussed our audit findings with SED officials before we issued our draft report. SED officials agreed with our interpretations of the Reimbursable Cost Manual’s provisions as we applied them to our audit of Churchill’s CFR. Moreover, in their formal response to our draft audit report, SED officials agreed with audit findings. If Churchill officials are unsure of the eligibility of certain expenses, they should consult with appropriate SED staff prior to claiming such costs on the CFR. 3. The language Churchill attributes to OSC is not included in our report. To the contrary, we take exception to the amounts of executive compensation paid to Churchill officials as detailed on page 6 of our report. 4. Our report accurately describes the different Churchill programs that were the subject of our audit. The distinctions between the Churchill “School” and Churchill “Center” are detailed on page 4 of our report. For those individuals described as “non-Churchill employees,” there was no evidence provided to us (either during our field work or accompanying Churchill’s response) proving that the individuals in question worked for the audited programs during our scope period. 5. We did not misunderstand the transactions in question. Moreover, as Churchill acknowledges, the bonuses in question were not merit-based (as otherwise required by the Manual). Although classified on Churchill’s books and records as bonuses (and claimed on the CFRs as such), these bonuses were not supported by the required written employee performance evaluations. 6. Our report appropriately cites the overpayments made to Churchill’s ED and CFO. As with all other special education providers receiving State funding, Churchill officials are subject to the salary caps, as noted in our report, for rate setting purposes. 7. Churchill officials are incorrect. Our report does not state that $2,913,337was misallocated to the Program. We state that $325,887 of that amount was misallocated. Further, according to the Manual, the salaries of administrative personnel should be allocated based on work effort. Since Churchill does not maintain records to illustrate the actual work effort of its employees, we applied a salary allocation methodology as permitted by the Manual. Further, the square footage method cited by Churchill officials would more appropriately be used to allocate space-related expenses, such as rent and utilities. 8. Our report does not address the programmatic merit of recognition awards. However, the costs of such awards are not reimbursable per the Manual. Further, the $1,750 cited in our report was in fact included on Churchill’s CFR. Such costs might have been chargeable to the Excess Teacher Turnover grant, which is a separate funding program. 9. We deleted the reference to non-Churchill students from the report. Further, although the Manual allows costs to transport students to and from extracurricular activities, such costs must be necessary for the program. However, as detailed in our report, the DoE and
  31. 31. 2012-S-20 Division of State Government Accountability 30 other school districts made buses available to Churchill to transport students during the school day. Consequently, the costs of a private carrier to transport students when public buses were available constituted an unnecessary, and therefore, ineligible expense. 10. As noted in our report, fees for the ED’s health club membership were claimed on Churchill’s CFR. 11. Routine parking for employees is not an ordinary and necessary expense of the Program, and as such, it is not reimbursable. Further, Churchill provided no evidence of emergencies that would have required employees to incur parking costs. 12. Churchill officials have not provided us with any documentation to dispute this finding. As detailed in our report, Churchill claimed costs for budget analysis, bank reconciliations, investment and other non-audit services which are ineligible for reimbursement per the Manual. 13. We revised our report wording on pages 9 and 10 after following up with SED and DoE. 14. We have referred our observations in these other Program areas to SED for the appropriate follow-up.

×